Energy price hike pushes up inflation
Consumers in Bangladesh were squeezed further in November as inflation kept rising, driven mainly by non-food inflation as the impacts of last month's hike of diesel and kerosene prices are taking a hold.
The Consumer Prices Index (CPI) rose 28 basis points to a 13-month high of 5.98 per cent from October's 5.7 per cent. This was up for the fourth consecutive month, according to the Bangladesh Bureau of Statistics.
Non-food inflation, which surged 39 basis points to rocket to a 63-month high, was the driving force for the rising general inflation.
The non-food inflation surged to 6.87 per cent last month from 6.48 per cent a month ago, the highest since August 2016, Bangladesh Bank data showed.
With a view to arresting the losses of state-run Bangladesh Petroleum Corporation from the surging global energy prices, the government in the first week of November increased the price of diesel and kerosene by 23 per cent, the biggest jump in a decade.
The move prompted the public transport operators to call a countrywide strike, inflicting immense sufferings onto the common people and bringing the movement of goods to a standstill.
Three days later, the government hiked the bus fare by as much as 28 per cent and launch fares by up to 43 per cent in order to appease the operators.
"Inflation in Bangladesh is catching up with global trends," Zahid Hussain, a noted economist, told The Daily Star.
As in the case of the rest of the world, the cost push has been the most important driver, which, in turn, came from the increases in energy prices.
Prices in the transport and communication sector increased the most, at 2.3 percentage points, in November relative to the previous month, he added.
"Unfortunately, the inflationary impact of the increase in energy prices may continue for some more months as the knock-on effects pass through the rest of the economy," said Hussain, also a former lead economist of the World Bank's Dhaka office.
As the world economy recovers from the pandemic, inflation is mounting in advanced and emerging economies.
Pent-up demand fueled by stimulus and pandemic disruptions is helping accelerate inflation, spread around the world through global factors like higher food and energy prices, and soaring shipping costs, said the International Monetary Fund last week.
Personal Consumption Expenditures, a measure of underlying inflation in the US, surged 5.7 per cent year-on year in November, the biggest leap in nearly 40 years.
Food inflation in Bangladesh is also at a higher level for the elevated commodity prices at home and abroad. It was up 21 basis points at 5.43 per cent in November, the highest in five months.
In Bangladesh, commodity prices have been surging for the last few months, owing to their record price levels in the global markets, an unprecedented level of shipping costs, and supply constraints.
The demand-pull has also played a role as evidenced from the increased prices of clothing, footwear, furniture and recreation.
The rising inflation has created a difficult trilemma for the finance ministry and the Bangladesh Bank, according to Hussain. "Inflation is squeezing the real spending power of consumers. As a result the incentives for businesses to invest is damaged. A fiscal expansion to repair the damage may backfire by further fueling inflation."
Hussain said the central bank has set a 14.8 per cent private credit growth target. In order to achieve it, the BB must ensure adequate liquidity in the banking system while maintaining the 9 per cent cap on the lending rate.
"Excess demand in the foreign exchange market has created pressure on the exchange rate. If the exchange rate depreciates too much too fast, it could further stoke inflationary pressure."
The fiscal policy targeted to protect the incomes of the poor is still feasible.
"Allowing a smooth adjustment in the exchange rate without hurting credit growth requires reconsideration of the interest rate cap to maintain the incentive to lend. Doing nothing risks unleashing stagflationary forces--rising inflation and lower growth."
The Consumer Price Index number given by the government doesn't reflect the actual situation, said Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue.
According to the economist, there are three major reason for the rising inflation: surging global commodity prices, the devaluation of the exchange rate that pushed up imported-inflation, and a hike in energy prices.
Besides, a pickup in demand has contributed to the higher inflation, he said.
"The current nature of inflation is hurting the marginalised and the people who lost their incomes due to the pandemic. So, managing inflation has become more important than ever."